Inflation measures
CPI vs PCE inflation: why the numbers differ
Compare CPI and PCE inflation, including coverage, spending weights, revisions, and which measure the Federal Reserve targets.
Coverage: whose spending is counted?
CPI focuses on purchases by urban consumers. PCE has broader coverage, including some spending made on households’ behalf, such as employer or government healthcare payments. The BLS comparison of CPI and PCE describes scope and methodological differences. Neither is a direct measurement of your particular household budget.
Weights: why identical prices can give different totals
For an illustrative two-category basket, suppose housing inflation is 6% and other spending inflation is 2%. A basket with 40% housing produces a simple weighted rate of 3.6%; one with 20% housing produces 2.8%. Those are invented weights, but show why indexes can disagree even when observing similar underlying price changes.
Formulas and revisions
PCE reflects changing spending patterns through its chain-type calculation and can be revised as economic source data change. CPI and PCE should therefore be compared using matching periods and release vintages. The BEA PCE overview explains its breadth and treatment of consumer behavior.
Choose a measure for the question
For the Fed’s target, use PCE. For a contract, use the exact index the agreement specifies. For this site’s historical dollar calculator, read its CPI-based methodology. Compare headline with headline or core with core; switching between both the index and the food-and-energy treatment makes a clean comparison impossible. See how to read CPI for index levels and rates.
Which inflation measure is correct?
Both can be valid for their intended scope. Differences do not by themselves establish that one is wrong. Choose the index that matches the population, spending coverage, and purpose of your comparison.